Reverse mortgages have been gaining in popularity in the last few years. So how does a reverse mortgage work?
A reverse mortgage or as they are sometimes called an, reverse equity mortgage is a a type of mortgage that lets homeowners convert some of the equity in their homes in to cash. The equity you have built up in your home over the years of payments can be paid to you over a chosen time frame to supplement your income. Reverse equity mortgages are quite different from the normal types of home mortgages. This type of mortgage can be compared to some types of home equity loans or a home equity credit line.
There are several requirements before a person can qualify for a reverse equity mortgage. The homeowner must be at least 62 years old or older. There are no minimum income, medical, or credit rating requirements. However the homeowner must of either already paid off the primary mortgage or will be paying the primary mortgage off with the proceeds from the reverse mortgage.
There are several options and choices on how a reverse mortgage can be paid out to the recipient. Generally though most people pick one of three payment types. The recipient can chose to be paid in a lump sum, an all at once payment. This is mostly chosen by those who have to pay off any primary mortgages that might be on the home currently.
The next payment type is monthly payments. Most people who chose this type of payment have already paid off the home and just need some extra income every month to help ends meet. And the last of the three is a home equity line of credit. Generally the people who chose this option have enough money coming in every month but would like a line of credit to cover those large unexpected bills that life likes to throw at you. Keep in mind these are just general ideas, what payment type you chose will depend on your own unique wants and needs.
Of course what is paid out in a reverse equity mortgage must be paid back at some point. There are several options here as well. There are several factors taken into account as to when a reverse mortgage must be repaid. The mortgage is repaid upon the death of the homeowner, if the homeowner sells the home, or if the owner moves out of the home.
A special note on the last one there, the homeowner moving out of the home. Some lenders and loans have a set amount of time the owner can be out of the house before repayment is required. Such absences that might trigger this could be something as small as a winter vacation to a warmer location or perhaps a nursing home stay to recover from an unexpected injury. Be sure to read up and do your homework in this regard, it could save you a lot of trouble down the road. I hope we have at least answered at least some of your, how does a reverse mortgage work questions.